Oil prices dip, losses capped by Iraq fears

Global oil prices eased Tuesday, but losses were limited as investors continued to fret over potential supply disruption due to the worsening sectarian violence in key crude producer Iraq.
Brent crude for August delivery fell 26 cents to $112.68 per barrel just after midday.
US benchmark West Texas Intermediate for July delivery reversed 61 cents to $106.29 a barrel.
“Brent crude has begun to fall back towards levels seen before the insurgency incursion began in Iraq," said analyst Dorian Lucas at energy consultancy Inenco.
"Gains previously seen have been driven by sentiment and fear of possible disruptions, which so far have not been realised."
Brent had surged on Friday to $114.69 -- last seen in September 2013 -- on the back of spreading violence in Iraq.
At least 44 prisoners were killed in an overnight militant assault on a police station in the Iraqi city of Baquba, security and medical officials said on Tuesday.
Accounts differed as to who was responsible for the killings, with Iraq's Prime Minister Nuri al-Maliki's security spokesman saying the prisoners were killed by insurgents carrying out the attack, and other officials saying they were killed by security forces as they tried to escape.
The crisis has a direct bearing on the oil market because Iraq is the second-biggest crude exporter in the 12-nation Organization of Petroleum Exporting Countries (OPEC) after cartel kingpin Saudi Arabia.
Risks of disruption to Iraq's oil output will remain limited despite the worsening crisis, BP chief executive Bob Dudley said Tuesday, while expressing alarm at the unrest.
"At the moment oil production isn't affected," Dudley said on the sidelines of an energy conference in Moscow.
"I don't believe that this kind of difficulty and instability will spread all the way to the far south of Iraq" -- home to the majority of the country's oil operations.
"But we should all be very alarmed by what is happening," Dudley told reporters at the World Petroleum Congress.
Iraqi security forces were carrying out a counter-offensive against militants who have captured a swathe of territory in an advance to Baghdad, as Washington weighed drone strikes against the jihadist fighters.
The lightning attack of Sunni extremists from the Islamic State of Iraq and the Levant has taken territory in Iraq's north, where a relatively small crude output had already been off the market since March due to violence.
There are now fears that the insurgency could spread to the south where most of Iraq's oil infrastructure is located.
"The predominant oil supply in Iraq is based around the southernmost peninsular of the country and remains far removed from the violence," added analyst Lucas.
"Significant (price) gains are expected with a realised disruption to oil exports, as Iraq is currently OPEC’s second largest exporter.”
Oil market investors will also be keeping an eye on a two-day meeting of the Federal Reserve's key policy-making committee starting later Tuesday.
The US central bank is widely expected to further scale down its massive monetary stimulus programme.